Subdivided Land, Unsubdivided, & Time Shares Flashcards
is improved or unimproved land(s) divided, or proposed to be divided, for the purpose of sale or lease, whether immediate or future, into six or more lots, parcels, or fractional interests. Each lot or parcel must be less than 36 acres.
subdivision
Terms
Lot: Individual piece of land measured and defined by the metes and bounds system.
Parcel: A part or portion of land; often used to identify a specific lot within a larger tract of property.
Improved lot or parcel: A lot or parcel with a residential, commercial, or industrial building. This term can also refer to a parcel that will feature one of these buildings within two years, per a contract.
Unimproved lot or parcel: A lot or parcel in a subdivision that does not have improvements.
Fractional interest: An undivided interest in improved or unimproved land and lots or parcels of any size created for the purpose of sale or lease.
is any person who offers for sale or lease six or more lots, parcels, or fractional interests in a subdivision. They can also cause land to be subdivided into a subdivision, either on their own behalf or for others.
A subdivider divides the land, while the developer puts improvements on the land. The subdivider and developer can be one and the same.
You do not need a real estate license to subdivide land.
Subdivider
As mentioned, a subdivider must obtain a public report from the Commissioner before any properties can be sold. The public report gives complete, accurate material facts about the subdivision.
Must be issued prior to signing the contract.
The purpose of the public report is to ensure that all relevant information has been disclosed to the buyer, so that they don’t end up in a Ned Warren situation, blinking sadly at their lot at the sandy bottom of a river bed.
The Commissioner will require the subdivider to reproduce the public report, make the report available to each initial prospective customer, and furnish each initial buyer or lessee with a copy before the buyer or lessee signs any contract.
A public report, once approved, is valid for five years.
It costs $500 to file the public report. Alternatively, if the public report is sent after the Notice to the Commissioner, it costs $250.
Public Report & Purpose
Contents of the Public Report:
The name and address of the owner, subdivider, and any involved brokerages.
The legal description and area of the land.
A title report, including all encumbrances.
The title needs to be marketable but not clear. More on that in a moment.
The terms and conditions for disposal of the land, together with copies of any real estate sales contract, conveyance, lease, assignment, etc.
A plat map of the subdivision that has been filed in the office of the county recorder in the county in which the subdivision is located.
A plat, as you may remember from earlier in the course, is a drawing of a development used in the block and lot method.
Physical features of the subdivided land, like any earth fissures or expansive soil.
Permanent access to and from all lots (also known as ingress and egress).
Sewage and solid waste collection and disposal.
Public utilities, including water, electricity, gas, and telephone facilities. This includes the schedule for public utilities and the costs incurred to residents.
The location of the nearest public common and high schools available for the attendance of school-age pupils residing on the subdivision property.
The use(s) for which the proposed subdivision will be offered.
Any restrictive covenants or other provisions limiting the use or occupancy of the parcels in the subdivision.
The indebtedness that is a lien on the subdivision or any part of the subdivision and that was incurred to pay for the construction of any on-site or off-site improvement, or any community or recreational facility.
The amount of annual taxes, special assessments, or fees to be paid by the buyer for the creation and proposed annual maintenance of common facilities in the subdivision. These are sometimes known as impact fees.
Provisions for water sources. A Certificate of Assured Water Supply from the Arizona Department of Water Resources, which guarantees water for 100 years (for active management areas only); otherwise, only a source of adequate water is required.
An active management area (AMA) is an area with heavy reliance on mined groundwater.
Assurances for the completion of off-site improvements (such as roads, utilities, community or recreational facilities) and other improvements to be included in the offering.
The nature of any improvements to be installed by the subdivider, the estimated schedule for completion, and the estimated costs related to the improvements that will be borne by purchasers of lots in the subdivision.
Presence of livestock. The report must include whether all or any portion of the subdivision is located in an open range or area in which livestock may roam at large under the laws of Arizona and what provisions, if any, have been made for the fencing of the subdivision to stop livestock from roaming within the subdivided lands.
The subdivider’s legal and business history. Similarly, if the subdivider is a subsidiary corporation, the report needs to include the parent corporation’s legal and business history.
Possible noise or military disturbances. The report needs to include whether all or any portion of the subdivision is located in the territory in the vicinity of a military airport, ancillary military facility, public airport, or in a high noise or accident potential zone.
Conversion from multifamily rental to condominiums. If the subdivision is a conversion from multifamily rental to condominiums, the public report needs to include a true statement acknowledging the conversion and giving the date the original construction was completed.
Subdivisions: Denial of Public Report
The Commissioner may suspend, revoke, or deny issuance of a public report on any of the following grounds:
Failure to comply with subdivision law or regulations.
Inability to demonstrate that adequate financial arrangements have been made for completion of all streets, sewers, electric, gas and water utilities, drainage and flood control facilities, community and recreational facilities, and other improvements included in the offering.
Failure to show that the lots, parcels, or fractional interests can be used for the purpose for which they are offered.
The sale or lease would constitute misrepresentation, deceit, or fraud of the purchasers or lessees.
Convictions of a felony or misdemeanor involving fraud or dishonesty or any past order, judgment, or decree issued related to conduct as a real estate professional as committed by the ower, agent, subdivider, or other party.
Procurement or an attempt to procure a public report by fraud, misrepresentation, or deceit or by filing an application for a public report that is materially false or misleading.
Failure of the declaration for a condominium to comply with requirements or failure of the plat for the condominium to comply with the requirements.
Inability to deliver the title or other interest contracted for.
Failure of any blanket encumbrance to contain provisions that enable the purchaser to acquire title to a lot or parcel free of the lien of the blanket encumbrance, on completion of all payments and performance.
In other words, a title for a lot or parcel doesn’t need to be clear (free of all encumbrances). However, it does need to be marketable (it can have encumbrances, but they are ordinary items like current property taxes and mortgage loan balance). A public report can be denied if the owner cannot produce marketable title.
Failure to demonstrate permanent access to the subdivision lots or parcels.
The use of the lots presents an unreasonable health risk.
Hearing Upon Denial of Public Report
Remember Subdivider Sally? What should she do if her public report gets denied? Here’s the process:
File a request for a hearing within 30 days of the denial.
The hearing must be held within 20 days of the receipt of the request.
If the ADRE does not hold a hearing within that time, or if they do not issue a decision within 45 days after submission, the denial will be rescinded, and the public report will be issued.
Amendment of Public Report
A subdivider may not, after getting the Commissioner’s approval for the public report, change the plan materially without first notifying the Commissioner in writing of the intended change.
Upon receiving any notice of a material change, the Commissioner may require the amendment of the public report and, if they determine such action to be necessary for the protection of purchasers, suspend their approval of sale or lease pending amendment of the public report.
If there has been a material change and an amendment to the public report is required, a purchaser or lessee who has not yet completed performance under the contract, or who has not yet taken possession, may cancel the contract or lease within 10 days after receiving written notice of the material change.
An amended public report will cost the developer half of the original filing fee.
Denial of Public Report
Subdivisions: Subsequent Owner Exemption
Let’s say that a public report was previously issued for some lots or parcels. Now the subdivision has changed hands, and a new developer is in charge – our friend Subdivider Sally!
If no material changes have been made (besides the change in ownership and financing changes), Sally can apply to the Commissioner to waive the requirement for a new public report to be issued. If the Commissioner grants her the exemption, she can give prospective buyers the old public report.
This is called the subsequent owner exemption.
Right of Rescission
We will dive deeper into this concept later in the course, but for now, let’s briefly define a term:
Rescission is the agreement to cancel a contract. It returns the parties to their pre-contract position. Because of this, any monies that exchanged hands must be returned.
When Can Subdivision Contracts be Rescinded?
Contracts for subdivided land can be rescinded. However, rescission can happen only in certain cases:
Improved, subdivided property: No right of rescission.
Unimproved, subdivided property:
If purchased sight unseen, six months from contract execution to rescind.
If purchased after personally inspecting, 7 days from contract execution to rescind.
Contract Disclosures
While we are talking about contracts, let’s get a few things clear. Any purchase contract for subdivided land needs to include:
The purchaser/lessee’s right to receive the public report
For unimproved parcels, the right of rescission
If these disclosures are not included, the contract is unenforceable.
Three-Year Rule
And remember, if a developer has sold or leased lots in a subdivision before the public report is issued, the transaction is rescindable. The purchaser or lessee can bring action against the developer for up to three years.
It is unlawful for a subdivider to sell any lot in a subdivision unless one of the following occurs:
All proposed or promised subdivision improvements are completed.
The completion of all proposed or promised subdivision improvements is assured.
The municipal or county government agrees to prohibit occupancy and the subdivider agrees not to close escrow for lots in the subdivision until all proposed or promised subdivision improvements are completed.
The municipal or county government enters into an assurance agreement with any trustee not to convey lots until improvements are completed within the portion of the subdivision containing these lots.
Sale of Unimproved Parcels
It is unlawful for a developer to sell an unimproved parcel unless one of the following occurs:
The seller signs and delivers a deed that transfers the marketable title. The deed and instrument should be recorded within 60 days after both of the parties sign.
The seller signs the purchase contract, which must be recorded and deposited within 60 days of execution. The seller will provide the preliminary title report, the deed that conveys marketable title, and the release from any blanket encumbrance. The documents must be recorded within 60 days after the purchaser has fulfilled their obligation.
Same as above, except that the trustee signs deeds and record items as needed.
The goal of these regulations is to protect people who buy unimproved land. After all, without any structures on the land yet, it might be a little harder to trust that the developer will make good on all their promises.
Subdivisions: Proper Modes of Sales
A lot split is land that is divided into five or fewer parcels.
A lot split, then, is smaller than subdivided land. Remember that subdivided land is six or more lots or parcels.
No public report is required for lot splits. However, an affidavit of disclosure is offered instead of the public report. Think of the affidavit as the public report in miniature, as it provides some of the same information, just much less detailed in its scope.
Affidavit of Disclosure Requirements
The affidavit of disclosure is required when all of these conditions apply:
The property is in an unincorporated area (that is, it’s not in a town or city).
The property is not in a subdivision.
The transaction involves five or fewer parcels.
Like the deed, the affidavit of disclosure must be recorded.
The affidavit of disclosure must be provided to the potential buyer at least seven days before the transfer of property.
Lot Splits
Once the buyer receives the affidavit, they can rescind the sales transaction for a period of five days from receipt.
Rescission Rights
It is unlawful for a person or group of persons acting in concert to divide a parcel of land or sell subdivision lots by using a series of owners or conveyances or by any other method that ultimately results in the division of the lands into a subdivision or the sale of subdivided land.
In other words, it’s illegal to try to skirt Arizona subdivision regulations by selling lots to a series of owners who then divide the lots again.
The ADRE has said that acting in concert is the prevalent method of avoiding subdivision laws.
Subdivisions: Acting in Concert
The term “wildcat subdivision” is used when a developer splits and sells lots for new homes while avoiding the ADRE’s regulations around subdivision development. Basically, the developer splits lots (like in the example above), and then takes advantage of the lot-splitting rule in which a public report is not required.
As a result, wildcat subdivisions experience blight and decline, with residents lacking access to amenities.
In conclusion: When developers don’t have to provide that public report, real problems can arise. 🦁
Wildcat Subdivisions
The following are exempt from the requirements about subdivisions we’ve gone over so far. Each of the lots, parcels, or fractional interests is:
36 acres or more in area
The result of a foreclosure sale, the exercise by a trustee under a deed of trust of a power of sale, or the grant of a deed in lieu of foreclosure
Created by a valid order or decree of a court
Having interest in any oil, gas, or mineral lease, permit, claim, or right
Registered as a security
Exempted by special order by the Commissioner
10 or more years after the sale or lease of another lot, parcel, or fractional interest which was not treated as a subdivision (unless, upon investigation by the Commissioner, there is evidence of intent to subdivide)
Sold or leased in bulk as six or more lots, parcels, or fractional interests to one buyer in one transaction
Bulk land (that is, a parcel of land that is 160 acres or bigger)
Zoned for commercial or industrial uses
Located in a single platted subdivision by a subdivider if:
A public report has been issued within the past five years.
The subdivision meets all current requirements.
The method of sale or lease of lots or parcels meets all current requirements.
The lots or parcels are included on a recorded subdivision plat that is approved by a municipal or county government.
All roads within the subdivision, all utilities to the lots or parcels being offered for sale or lease and all other required improvements within the subdivision, other than a residence to be built, are complete, paid for and free of any blanket encumbrances.
The roads, utilities, or other improvements are not complete, but the completion of all improvements is assured.
Except for matters relating to ownership and financing, there have been no material changes to the information set forth in the most recent public report.
No owner of a 10% or greater interest, subdivider, director, partner, agent, officer, or developer of the subdivision has experienced criminal conviction, civil judgments, or related discipline.
The sale of the subdivided lands violates no laws or ordinances of any governmental authority.
Before the buyer’s or lessee’s entering into the contract, the subdivider provided them with a copy of the most recent public report on the lot and has taken a receipt from the buyer for the copy.
The subdivider has provided to the buyer or lessee, along with the public report, a signed statement that the subdivider has reviewed and is in compliance with the terms of the exemption.
Before sale or lease, the subdivider has notified the Commissioner, on a form provided by the department, of the subdivider’s intent to sell or lease lots or parcels.
The conveyance to a person who previously conveyed the lot to a home builder for the purpose of constructing a dwelling for the person.
The sale or lease by a person of individual lots or parcels that were separately acquired by the person from different persons and that were not acquired for the purpose of development if:
The lots or parcels are not located in a platted subdivision.
Each lot or parcel bears the same legal description that it bore when the lot or parcel was acquired by the person.
The seller or lessor is in compliance with all other applicable state and local government requirements.
The sale of an improved lot in a subdivision that is located outside of Arizona if:
The subdivision is located within the United States and the sale is exempt from the Interstate Land Sales Full Disclosure Act.
The subdivider is required by the state where the subdivision is located to deliver a public report or equivalent disclosure document.
The sale of an improved lot in a subdivision located in Arizona where five or more sales were previously made by the seller if:
The sale is the seller’s first or second sale in the subdivision within the previous 12 month period.
The subdivision is located within the corporate limits of a town or city.
Electricity and telephone service are complete and available to the improved lot.
Water and sewage service is complete and available to the improved lot.
Streets and roads located outside of the subdivision provide permanent access to the subdivision and are complete and maintained by the county, town, or city, or by a legally created and operational property owners’ association.
Streets within the subdivision provide permanent access to the lot.
All subdivision common area improvements, including landscaping, recreational facilities, and other jointly used and maintained improvements, are complete and maintained by a legally created and operational property owners’ association.
The purchaser’s down payment, earnest money, deposit, or other advanced money is placed and held in a neutral escrow depository.
Within the previous 12 months, the seller has not had an ownership interest in more than two lots in the subdivision, including an interest by option, an agreement for sale, a beneficial interest under a trust, or a purchase contract.
Subdivisions: Exemptions
Test Question Examples
. You are likely to be tested on the one buyer exemption, the bulk land exemption and the commercial and industrial zoning exemption, so study up on those!
